IMF Chief Kristalina Georgieva said on Thursday that interest rates are expected to continue falling in 2024, but she cautioned that the last stage is "very, very tricky" and there is no room for policy errors.
During an interview at the World Economic Forum's Annual Meeting 2024 in Davos, she emphasised that central banks should avoid premature tightening, as they might risk losing the progress achieved so far.
Georgieva expressed optimism about the positive trend continuing in 2024, with the average inflation rate decreasing. However, she highlighted regional discrepancies, noting that some countries have successfully managed inflation and can afford accommodative monetary policies. In contrast, others, like Brazil, may face challenges.
"What we have now is a very diverse range. In some countries, the job is already done, and inflation is low enough for them to have an accommodative monetary policy. Brazil is one example. And in Asia, many countries did not have an inflation problem to start with," she said.
"Central banks should not tighten prematurely because then they may lose the victory that is now in their hands. But if they are too slow, then they could throw cold water on the economy," she cautioned.
She urged caution in policymaking, emphasising the importance of focusing on data. Georgieva pointed out that the United States has a tight labour market, with wages surpassing inflation. While this means people have more money to spend, it also puts upward pressure on prices. She concluded that navigating this "last mile" is particularly challenging.
(With PTI inputs)
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